Are costs differences between specialist and general hospitals compensated by the prospective payment system?

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Prospective payment systems fund hospitals based on a fixed-price regime that does not directly distinguish between specialist and general hospitals. We investigate whether current prospective payments in England compensate for differences in costs between specialist orthopaedic hospitals and trauma and orthopaedics departments in general hospitals. We employ reference cost data for a sample of hospitals providing services in the trauma and orthopaedics specialty. Our regression results suggest that specialist orthopaedic hospitals have on average 13% lower profit margins. Under the assumption of break-even for the average trauma and orthopaedics department, two of the three specialist orthopaedic hospitals appear to make a loss on their activity. The same holds true for 33% of departments in our sample. Patient age and severity are the main drivers of such differences.
Original languageEnglish
Number of pages20
JournalEuropean Journal of Health Economics
Early online date26 Oct 2017
Publication statusE-pub ahead of print - 26 Oct 2017
EventEuopean Health Economics Association Conference 2016: Know the Ropes - Balancing Costs and Quality in Health Care - Hamburg Center for Health Economics, Hamburg, Germany
Duration: 13 Jul 201616 Jul 2016

Bibliographical note

© The Author(s) 2017. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details


  • specialist hospitals
  • orthopaedics
  • hospital costs
  • HRG
  • tariff
  • reference costs

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